Whether you subscribe to the Dave Ramsey school of thought or the Suze Orman mindset (or any other financial guru you like), there is one common lesson to be learned: you must create and stick to a budget. In fact, you’ve probably been told about the importance of budgeting more times than you can count. Hearing about the importance of budgeting, though, is a lot different than understanding why budgeting is important.
One of the reasons that budgeting is so important is the knowledge that budgeting creates. When you create a budget, you force yourself to get to know your expenses. During your first month of budgeting, for instance, you may estimate that you spend $300 per month on food. After tracking your spending for a month, however, you may realize that you actually spend closer to $600 per month. People who budget are simply more in touch with their spending habits than people who are still avoiding the idea of a budget.
Budgeting is also important because it builds accountability into your spending. By deciding ahead of time how much money you will spend in any given category of your budget, you create expectations. Imagine for a moment that you have budgeted $50 for clothes this month. Then, you see an amazing dress on sale at your favorite store for $50.
If you didn’t have a budget, you might select the dress in your size and head for the nearest checkout counter. Having a budget, though, makes you stop and think before you jump into that purchase. Is that dress worth foregoing any other clothes for the rest of the month? How will you explain the overage at the end of the month? Your budget may just save you from making a purchase that you will regret.
So now that I’ve convinced you that budgeting is important, how will you successfully stick to one? Although adhering to a budget can be tough, here are a few quick and dirty tips to get you started:
Track ALL of your spending. You can’t accurately budget without knowing where your money is going. Carry a little notebook with you if you need to in order to ensure that you keep good records.
Be realistic in your budgeting. Don’t be too optimistic as you create your budget. If you normally spend $200 for food each month, don’t budget $50. Unrealistic budget goals just set you up for disappointment.
Update your budget each month. All-purpose budgets that don’t adjust for changes in your life aren’t always accurate. During December, for instance, we always budget for higher food costs than in, say, March.
Review your spending at the end of each month. Before you create your next month’s budget, you should always take the time to look over your budgeting successes/failures from the previous month. Determining where the weaknesses are in your budget will help you create a better budget in the future.
{ 6 comments… read them below or add one }
I have been doing research on how to save money and honestly frugal budgeting seems to be the most difficult. I just can’t imagine counting all of the small purchases such as fast food purchases into a log. I have heard of the jar method but am still iffy about that. Hope the logging helps you though.
@ David congratulations on eliminating your debt without creating a budget. It certainly shows that you have tons of self control BUT how many people do you know who actually have that self control?
I did not have it until I actually wrote down my budget and when I saw I could only spend X amount on clothing (or whatever) and would then have to dip into food money it made me think.
I am currently working with a coworker on getting a budget because she simply does not have the self control to cut costs without it. She gets about 4 overdraft fees every month because she is very impulsive. I got her to write down her spending and although she is mad about it….no overdraft this month!!!!
Until she started tracking all she could do was say that she knows they always have overdraft fees….when she tracked and saw it was $128 on average per month she wised up.
No disrepsect to Dave Ramsey or Suze Orman(or the authors of this blog) but I was as deep in debt as it gets, and never once wrote a budget and never once tracked my spending.
I ELMINATED a lot of spending, but never tracked it.
Two quick points: If your in a financial mess, you shouldn’t be spending $50 a month on clothes anyways–right there you could save $600 annually, even if you did it for one year.
Second, if you’re in debt, chances are you’re not paying attention to how you shop for food. Take a hard look at ways to “decrease” the amount you spend each month, rather than how much you do spend, and you’ll see the results.
But for those that need it, budgeting is an effective tool.
I don’t update my budget every month. I build into the budget planned spending for those big ticket things that happen once a year like Christmas. I decide in January who I will need to buy for, how much to spend on holiday clothes, gifts, decorations etc. I build that into my monthly budget as “planned spending” and move it directly to the off-limits savings account – that way I’ve broken up the big Christmas hit over 11 months. Same with my car insurance, anticipated car repairs etc.
I think you’ve hit on the key to budgeting. Sure you could make an amazing, complicated budget that if stuck to might fix all of your worldly problems.
Unfortunately it’s extremely rare for someone to stick to something like that. It is far better to set a realistic and fairly simple budget so at least you can use it as a baseline to educate yourself on your spending.
I actually learned how to budget when I went to cooking school and had to estimate the cost of food for a restaurant. The instructor was great at setting us menus that had ridiculously high cost ingredients in it and then we would have to use a tiny budget to buy everything . It wasn’t actually possible and what he was trying to teach us was when something is too expensive there are always other options and you will have to change the meal not the budget.